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Trickle-down economics

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This article is about the political term. For the marketing phenomenon, see trickle-down effect.

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Ronald Reagan's economic policies, dubbed "Reaganomics" by opponents, included large tax cuts and were characterized as trickle-down economics. In this picture, he is outlining his plan for the Economic Recovery Tax Act of 1981 from the Oval Office in a televised address, July 1981

Trickle-down economics is a term used in critical references to economic policies that favor the upper income brackets, corporations, and individuals with substantial wealth or capital.[1] In recent history, the term has been used by critics of supply-side economics. Whereas general supply-side theory favors lowering taxes overall, trickle-down theory more specifically advocates for a lower tax burden on the upper end of the economic spectrum.[2][3]

Major examples of US Republicans supporting what critics call "trickle-down economics" include the Reagan tax cuts, the Bush tax cuts and the Tax Cuts and Jobs Act of 2017.[4] In each of the aforementioned tax reforms, taxes were cut across all income brackets, but the biggest reductions were given to the highest income earners,[5] although the Reagan Era tax reforms also introduced the earned income tax credit which has received bipartisan praise for poverty reduction and is largely why the bottom half of workers pay no federal income tax.[6] Similarly, the Tax Cuts and Jobs Act of 2017 cut taxes across all income brackets, but especially favored the wealthy.[7]

The term "trickle-down" originated as a joke by humorist Will Rogers and today is often used to criticize economic policies that favor the wealthy or privileged while being framed as good for the average citizen.[8] David Stockman, Ronald Reagan's former budget director, championed Reagan's tax cuts at first, but later became critical of them and told journalist William Greider that "supply-side economics" is the trickle-down idea:[9][10]

It's kind of hard to sell 'trickle down,' so the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory.

— David Stockman, The Atlantic

Political opponents of the Reagan administration soon seized on this language in an effort to brand the administration as caring only about the wealthy.[11] Some studies suggest a link between trickle-down economics and reduced growth, and some newspapers concluded that trickle-down economics does not promote jobs or growth, and that "policy makers shouldn't worry that raising taxes on the rich ... will harm their economies".[12][13][14]

History

William Jennings Bryan, who criticized trickle-down theory in his Cross of Gold speech in 1896

In 1896, Democratic presidential candidate William Jennings Bryan described the concept using the metaphor of a "leak" in his Cross of Gold speech:[15][16]

There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.[17]

Humorist Will Rogers jokingly advised in a 1932 column:

This election was lost four and six years ago, not this year. They [Republicans] didn't start thinking of the old common fellow till just as they started out on the election tour. The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickles down. Put it uphill and let it go and it will reach the driest little spot. But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow's hands. They saved the big banks, but the little ones went up the flue.[8]

William J. Bennett wrote:

Humorist Will Rogers referred to the theory that cutting taxes for higher earners and businesses was a "trickle-down" policy, a term that has stuck over the years.[18]

Presidential speechwriter Samuel Rosenman wrote:

The philosophy that had prevailed in Washington since 1921, that the object of government was to provide prosperity for those who lived and worked at the top of the economic pyramid, in the belief that prosperity would trickle down to the bottom of the heap and benefit all. [19]

The Merriam-Webster Dictionary notes that the first known use of "trickle-down" as an adjective meaning "relating to or working on the principle of trickle-down theory" was in 1944[20] while the first known use of "trickle-down theory" was in 1954.[21]

After leaving the presidency, Democrat Lyndon B. Johnson alleged "Republicans ... simply don't know how to manage the economy. They're so busy operating the trickle-down theory, giving the richest corporations the biggest break, that the whole thing goes to hell in a handbasket."[22]

Economist Thomas Sowell consistently argues that trickle-down economics has never been advocated by any economist, writing in his 2012 book "Trickle Down" Theory and "Tax Cuts for the Rich":

Let's do something completely unexpected: Let's stop and think. Why would anyone advocate that we "give" something to A in hopes that it would trickle down to B? Why in the world would any sane person not give it to B and cut out the middleman? But all this is moot, because there was no trickle-down theory about giving something to anybody in the first place.

The "trickle-down" theory cannot be found in even the most voluminous scholarly studies of economic theories - including J. A. Schumpeter's monumental History of Economic Analysis, more than a thousand pages long and printed in very small type.[23]

Sowell has also written extensively on trickle-down economics and opposes its characterization firmly, citing that supply-side economics has never claimed to work in a "trickle-down" fashion. Rather, the economic theory of reducing marginal tax rates works in precisely the opposite direction: "Workers are always paid first and then profits flow upward later – if at all."[24][25]

Usage

In a study of "zombie ideas", political scientists Brainard Guy Peters and Maximilian Lennart Nagel describe trickle-down economics as the most enduring "zombie idea" in American politics. By zombie idea, they refer to ideas which have been unsuccessful at achieving intended goals, yet still survived in public policy discourse.[26]

Economics

The economist John Kenneth Galbraith noted that "trickle-down economics" had been tried before in the United States in the 1890s under the name "horse-and-sparrow theory", writing:

Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: "If you feed the horse enough oats, some will pass through to the road for the sparrows."

Galbraith theorized that the horse-and-sparrow theory was partly to blame for the Panic of 1896.[27]

In 2016, Nobel laureate Joseph Stiglitz wrote that the post-World War II evidence does not support trickle-down economics, but rather "trickle-up economics" whereby more money in the pockets of the poor or the middle benefits everyone.[28]

A 2020 piece by the Washington Post finds that trickle-down economics succeeds only at making the rich gain more wealth all with no value overall to the economy; From data spanning 50 years from 18 countries.[29]

A 2022 review of 18 countries' tax policies between 1965 and 2015 found no evidence that tax cuts for the rich trickled down to bolster the economy as a whole.[30]

While the term "trickle-down" is commonly used to refer to income benefits, it is sometimes used to refer to the idea of positive externalities arising from technological innovation or increased trade. Arthur Okun,[31] and separately William Baumol,[32] for example, have used the term to refer to the flow of the benefits of innovation, which do not accrue entirely to the "great entrepreneurs and inventors", but trickle down to the masses. And Nobel laureate economist Paul Romer used the term in reference to the impact on wealth from tariff changes.[33]

Politics

Speaking on the Senate floor in 1992, Hank Brown (Republican senator for Colorado) said: "Mr. President, the trickle-down theory attributed to the Republican Party has never been articulated by President Reagan and has never been articulated by President Bush and has never been advocated by either one of them. One might argue whether trickle-down makes any sense or not. To attribute to people who have advocated the opposite in policies is not only inaccurate but poisons the debate on public issues."[34]

While running against Ronald Reagan for the Presidential nomination in 1980, George H. W. Bush had derided the trickle-down approach as "voodoo economics".[1][35] In the 1992 presidential election, independent candidate Ross Perot also referred to trickle-down economics as "political voodoo".[36] In the same election during a presidential town hall debate, Bill Clinton said:

What I want you to understand is the national debt is not the only cause of [declining economic conditions in America]. It is because America has not invested in its people. It is because we have not grown. It is because we've had 12 years of trickle-down economics. We've gone from first to twelfth in the world in wages. We've had four years where we’ve produced no private-sector jobs. Most people are working harder for less money than they were making 10 years ago.[37]

The political campaign group, Tax Justice Network has used the term referring broadly to wealth inequality in its criticisms of tax havens. [38]

In 2013, Pope Francis referred to "trickle-down theories" in his apostolic exhortation Evangelii Gaudium with the following statement (No. 54):

Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.[39]

In New Zealand, Damien O'Connor, an MP from the Labour Party, called trickle-down economics "the rich pissing on the poor" in the Labour Party campaign launch video for the 2011 general election.[40] In a 2016 presidential candidates debate, Hillary Clinton accused Donald Trump of supporting the "most extreme" version of trickle-down economics with his tax plan, calling it "trumped-up trickle-down" as a pun on his name.[41] In his speech to a joint session of Congress on April 28, 2021, US President Joe Biden stated that "trickle-down economics has never worked".[42] Biden has continued to be critical of trickle-down.[43][44]

See also

References

  1. ^ a b Wiseman, Paul. "Trickle-down economics gets another try". The Detroit News. Retrieved October 18, 2022.
  2. ^ Amadeo, Kimberly (April 29, 2017). "Why Trickle Down Economic Works in Theory But Not in Fact". The Balance.
  3. ^ Crouse, Eric R. (2013). The Cross and Reaganomics: Conservative Christians Defending Ronald Reagan. Rowman & Littlefield. p. 31. ISBN 9780739182222.
  4. ^ "Trickle-down economics gets new life as Republicans push tax-cut plan". USA Today.
  5. ^ "Reaganomics", Corporate Finance Institute. Retrieved May 16, 2021.
  6. ^ Marr, Chuck (August 1, 2014). "Reagan’s Actions Made Him a True EITC Champion". Center on Budget and Policy Priorities. Retrieved May 16, 2021.
  7. ^ Casselman, Ben and Jim Tankersley (April 14, 2019). "Face It: You (Probably) Got a Tax Cut". The New York Times. Retrieved May 16, 2021.
  8. ^ a b Roger, Will (November 26, 1932). "Will Rogers Explains That Money, Unlike Water, Always Trickles Up". The St. Louis Star and Times.
  9. ^ "The Education of David Stockman" Archived December 27, 2020, at the Wayback Machine by William Greider
  10. ^ William Greider. The Education of David Stockman. ISBN 0-525-48010-2.
  11. ^ Thomas, Sowell (January 7, 2014). "The Trickle-Down Lie". National Review.
  12. ^ Cite error: The named reference imf was invoked but never defined (see the help page).
  13. ^ "In the Real World of Work and Wages, Trickle-Down Theories Don't Hold Up". The New York Times. April 12, 2007. Archived from the original on November 12, 2020. Retrieved February 23, 2017.
  14. ^ Craig Stirling (December 16, 2020). "Fifty Years of Tax Cuts for Rich Didn't Trickle Down, Study Says". Bloomberg News.
  15. ^ Wilson, Thomas Frederick. 1992. The Power "to Coin" Money: The Exercise of Monetary Powers by the Congress. Armonk, New York: M. E. Sharpe. p. 172. ISBN 0873327942
  16. ^ Baker, Andrew, David Hudson, and Richard Woodward. 2005. Governing Financial Globalization: International Political Economy and Multi-Level Governance. London; New York: Routledge. p. 26. ISBN 9780203479278.
  17. ^ "Bryan's 'Cross of Gold' Speech: Mesmerizing the Masses", Archived September 27, 2011, at the Wayback Machine, historymatters.com
  18. ^ Bennett, William J. (2007). America: The Last Best Hope. Harper Collins. p. 78. ISBN 1595551115.
  19. ^ {{Cite book|url= https://books.google.com/books/about/The_Forgotten_Man.html?id=N9TiWUk6TqUC& redir_esc=y |title= The Forgotten Man: A New History of the Great Depression |last=Shlaes|first=Amity|date=May 27, 2008|publisher=Harper Perennial|isbn=9780060936426|pages=128|language=en|access-date=September 6, 2022}}
  20. ^ "trickle-down". Merriam-Webster (online edition). Archived April 10, 2010, at the Wayback Machine. Accessed September 17, 2010.
  21. ^ "trickle-down theory". Merriam-Webster (online edition). Archived April 10, 2010, at the Wayback Machine. Accessed September 17, 2010.
  22. ^ Janos, Leo (July 1973). "The Last Days of the President". The Atlantic. Archived from the original on July 1, 2013. Retrieved March 12, 2017.
  23. ^ Sowell, Thomas (2012). "Trickle Down" Theory and "Tax Cuts for the Rich" (PDF). Hoover Institution Press. pp. 1–2. ISBN 9780817916152. Retrieved September 6, 2022.
  24. ^ Sowell, Thomas (January 7, 2014). "The 'Trickle-Down' Lie". Archived from the original on December 27, 2020. Retrieved December 1, 2020.
  25. ^ "'Trickle Down' Theory and 'Tax Cuts for the Rich'". Archived September 24, 2012, at the Wayback Machine.
  26. ^ Peters, Brainard Guy; Nagel, Maximilian Lennart (2020). Zombie Ideas: Why Failed Policy Ideas Persist. Cambridge University Press. p. 8. doi:10.1017/9781108921312. ISBN 9781108921312. S2CID 229422499. Archived from the original on December 27, 2020. Retrieved November 28, 2020. {{cite book}}: |website= ignored (help)
  27. ^ Galbraith, John Kenneth (February 4, 1982) "Recession Economics". Archived December 27, 2020, at the Wayback Machine. New York Review of Books Volume 29, Number 1.
  28. ^ Stiglitz, Joseph E. (2016). "Inequality and Economic Growth". Rethinking Capitalism. Wiley-Blackwell: 134–155. doi:10.7916/d8-gjpw-1v31.
  29. ^ Christopher Ingraham (December 24, 2020) [2020-12-23]. "'Trickle-down' tax cuts make the rich richer but are of no value to overall economy, study finds". The Washington Post. Washington, D.C. ISSN 0190-8286. OCLC 1330888409.[please check these dates]
  30. ^ Hope, David; Limberg, Julian (July 8, 2022). "The economic consequences of major tax cuts for the rich". Socio-Economic Review. 20 (2): 539–559. doi:10.1093/ser/mwab061. ISSN 1475-1461.
  31. ^ Okun, Arthur M. (1975). Equality and Efficiency, the Big Tradeoff. Brookings Institution. pp. 46–47. ISBN 9780815764762.
  32. ^ Baumol, William J. (July 1, 2010). The Microtheory of Innovative Entrepreneurship. Princeton University Press. p. 80. ISBN 9781400835225. Archived from the original on December 27, 2020. Retrieved September 17, 2020.
  33. ^ Romer, Paul (February 1, 1994). "New goods, old theory, and the welfare costs of trade restrictions" (PDF). Journal of Development Economics. 43 (1): 5–38. doi:10.1016/0304-3878(94)90021-3. ISSN 0304-3878. S2CID 28772407.
  34. ^ Hank Brown. Congressional Record, March 24, 1992.
  35. ^ "Reagonomics or 'voodoo economics'?". BBC News. June 5, 2004. Archived from the original on August 29, 2017. Retrieved January 4, 2012.
  36. ^ "Commercials – 1992 – Trickle Down". The Living Room Candidate. Archived from the original on December 27, 2020. Retrieved March 13, 2017.
  37. ^ "Bill Clinton Won 1992 Town Hall Debate By Engaging With One Voter". Huffington Post. October 16, 2012. Archived from the original on December 27, 2020. Retrieved March 16, 2017.
  38. ^ Heather Stewart (July 21, 2012). "Wealth doesn't trickle down – it just floods offshore, research reveals". The Guardian. London. Retrieved August 6, 2012.
  39. ^ "Evangelii Gaudium: Apostolic Exhortation on the Proclamation of the Gospel in Today's World". Holy See. Archived from the original on August 11, 2015. Retrieved December 9, 2019.
  40. ^ Chapman, Kate (October 28, 2011). "Labour campaign video harks back to history". Stuff.co.nz. Retrieved October 5, 2016.
  41. ^ Pramuk, Jacob (September 26, 2016). "Clinton: Trump would cut taxes for the rich in 'trumped up' trickle down economics". CNBC. Archived from the original on December 27, 2020. Retrieved September 17, 2017.
  42. ^ "Biden: 'Trickle-down economics has never worked'". April 28, 2021.
  43. ^ "Biden Criticizes 'Mega-MAGA Trickle-Down Economics'". WSJ. Retrieved November 3, 2022.
  44. ^ "Video 'I'm so sick and tired of trickle-down economics': Biden". ABC News. Retrieved November 3, 2022.
  • Mkilema, F. (2018). Trickle down economics Vs. Middle-out economics

Further reading

Wikiquote has quotations related to Trickle-down economics.
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