Trickle Down Voodoo

It seems clear that Trickle Down Economics is back with new tax breaks for the rich, new spending on the security-industrial complex, and our first dip into deficit spending in years. While some call it it Voodo Economics, faith in Trickle Down Economics seems to be based upon the oft repeated line that anytime you put money into the economy, it benefits everybody. When pressed about rising executive salaries, believers embrace that too as eventually benefitting the economy.

I found myself in an argument about these matters recently, and had to take a moment to assemble my thoughts about it.

Trickle down economics is based on the belief that money is like energy, it can neither be created nor destroyed, only transferred. Government spending is supposedly the start of a great money chain that goes through large corporations and the rich before eventually ending with our lower classes. But these explanations ignore the fact that governments cannot spend money without raising taxes or incurring greater debt (which just delays and increases the eventual tax burden). The complete money chain begins not with government spending, but with taxes.

Since the burden of taxes falls largely on the poor and middle classes (the rich and large corporations often avoid paying taxes entirely — read more in the [url=http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/10/09/MN3707.DTL]SF Chronicle[/url] and [url=http://www.reclaimdemocracy.org/weekly_article/corporate_tax_evasion.html]Reclaim Democracy[/url]), and the first beneficiaries of government spending are large corporations and the rich, the final result of trickle down economics is to greatly increase the gap between rich and poor.

It is fair to ask where all this money is going, though. Even though executive compensation is on the rise, average worker pay has been nearly stagnant (average executive salaries were 42 times greater than the average worker’s salary in 1980 and grew to 420 by 1998, salary growth was at almost 15% per year for executives but less than 3% per year for workers — read more at [url=http://www.cfo.com/article/1,5309,7675,00.html?f=related]CFO.com[/url], [url=http://www3.sympatico.ca/n.rieck/docs/ceos_win_workers_lose.html]CEOs Win, Workers Lose[/url], [url=http://www.thirdworldtraveler.com/Political/WhichSideYouOn.html]Third World Traveler[/url]). In the meantime, tax and welfare reforms resulted in a 10% reduction in the economic power of the bottom 40% of Americans. Clearly, many manufacturing jobs have left to country or have been lost to automation (the US lost 3 million manufacturing jobs between 1979 and 1992, before NAFTA! — visit [url=http://www.socialdemocrats.org/ii.html]SocialDemocrats.com[/url] for more). And the service jobs that remain pay poorly and mostly require unskilled labor. So, where indeed is the money going?

Finally, if trickle down economics really works, what’s so wrong with giving government handouts to the poor and middle class, certainly it would eventually benefit the rich?

Trickle Down Economics had its chance with Reagan in the 80s when our deficit ballooned to over a trillion dollars, unemployment rose to over 10%, and the number of homeless people rose to the highest rate in history (look [url=http://www.geocities.com/CapitolHill/Congress/8319/millenquestions.html]here[/url] for more).

2 thoughts on “Trickle Down Voodoo

  1. Well, since I was the one you were discussing this with…

    Let me say publicly that I mis-stated my case.
    While I did use the words Trickle-down Economics, what I meant to say was that as the economy expands, everyone benefits. The goal is slow and steady growth. To achieve this, sometimes it is necessary to give a short-term boost to either business, consumers, or both. When growth is too fast, the brakes must be applied in the form of higher interest rates. Our graduated income tax also helps with this.
    The private sector is generally a better engine for the economy than government. While governmental spending does add a temporary boost, it takes the money back out in taxes. Thus, it’s a short-term solution.

    All of this is basic Macroeconomics, not Trickle-down Economics.

    I should say that I don’t agree with those who call for privatizing everything, slashing tax rates, and a flat-rate income tax. But in general, the system we have works. But not perfectly! We do have poor people, and we have an elite that enjoys greater rights and privileges than you or I. But there are no industrial or post-industrial societies that do not have these things. There ARE societies that manage to reduce the size of their elite and poor classes, but what price do they they pay in order to do so? Generally in the more socialist countries, the middle class has a lower standard of living and less freedom than we are used to here. How do I know this? Well, besides coursework in college, I actually lived in Europe for over 3 years. But I wouldn’t suggest that anyone take my word for it. Take some courses like Macroeconomics, European Government, and Comparative Politics, and see for yourself.

    Remember the grass is always greener on the other side of the fence.

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